Pharmacy Benefit Managers: Practices, Controversies, and What Lies Ahead
PBM–Pharmacy Contracts: The Spread and the Gag Clause
There have been controversies around how PBMs derive revenue from reimbursement to pharmacies. PBMs’ reimbursement to pharmacies for generic drugs has been based on a maximum allowable cost (MAC) schedule, a PBM-generated list of off-patent drugs that includes the maximum price the PBM will pay for each. The MAC schedule can be kept confidential from health plans, allowing PBMs to charge health plans and employers a higher price. The PBM then retains the difference between the MAC price they pay the pharmacy and the price the health plan pays, which is termed “the spread.” In a recent example of the pharmacy spread problem, two PBMs in Ohio reimbursed pharmacies $2.3 billion and billed Medicaid $2.5 billion for their generic and branded drugs, resulting in a spread of $200 million.a
Federal legislation proposed in 2017 and 2018 would mandate that PBMs update their MAC schedule to reflect generic drug price increases. This would likely protect pharmacies’ margins (especially for nonchain pharmacies that may not have large bargaining power), but would not address the problem of not knowing what share of the overall pharmacy spread is being passed on to payers, and ultimately patients. These reforms are also limited in that most of them only affect generic drug prices. To impact a larger share of overall drug spending, payers would need to calculate and recoup the spread made on both generic and brand-name drugs.
Another controversial issue is the gag clause, a requirement PBMs wrote into pharmacy contracts that prohibits pharmacists from disclosing to patients that a drug may be less expensive if paid for directly without using insurance. This allows PBMs to profit from patients’ copays. A recent JAMA study showed that copayments were higher than the cash price for one of four drugs purchased by patients with Medicare Part D insurance in 2013. For 12 of the 20 most commonly prescribed drugs, patients overpaid by more than 33 percent.b The gag clauses in the contract may directly stipulate that patients cannot be informed of the cheaper alternative unless they ask. In some cases, the contractual language may be more nebulous, with broad language requiring that pharmaceutical reimbursement rates and prices be kept confidential. States and Congress have taken swift action on gag clauses. Between 2016 and September 2018, 27 states enacted laws that sought to prevent gag clauses. In September 2018, Congress passed a federal law prohibiting gag clauses.
